UK: General Anti-Abuse Rule December 2012

Last Updated: 2 January 2013
Article by Smith & Williamson


On 11 December 2012 the Government issued draft legislation in respect of the General Anti-Abuse Rule (GAAR) amending that published for consultation earlier in June. It also published a summary of over 14,000 responses to that June consultation and a draft of a three part guidance to the GAAR, covering (i) the scope of the legislation, (ii) examples of how the GAAR applies to tax arrangements and (iii)GAAR procedural matters.

Some points of interest that were raised following the June consultation document are:

  • Inheritance tax will be covered by the GAAR. One of the indicators of avoidance in the June draft legislation has however been omitted. This had referred to the presence of arrangements where an amount was significantly different to its market value or was otherwise on non-commercial terms. While this change removes an obvious contradiction with the way inheritance transactions are normally carried out, there still remains the qualification in the draft legislation that the indicators listed are not exhaustive in identifying indicators of avoidance.
  • There is an explicit statement that a possible indicator of non-abusive arrangements is that the tax arrangements are in accordance with established practice and, at the time the arrangements were entered into, HMRC had indicated its acceptance of that practice.
  • The commencement date for the GAAR will be the date of Royal Assent of Finance Bill 2013, not April 2013 as originally thought.
  • The definition of 'abusive arrangements' to which the GAAR applies has been refined and while the terms do not appear to have changed substantially, the tone of the revised draft is more about targeting contrived arrangements, which exploit shortcomings in legislation.
  • Added to the list of indicators of abusive tax arrangements is the proviso that these only apply where it is reasonable to assume the result was not the intended result when the relevant tax provisions were enacted. ).
  • There is now a schedule setting out the procedural requirements before an officer of HMRC can issue a counteraction notice under the GAAR. The procedural aspects require assessment of the proposed counteraction by a 'designated HMRC officer'.
  • The schedule of procedural requirements confirms that the advisory panel will not have members from HMRC. There will be a chair who will recommend three people (who can include the chair) to the advisory panel. However both the chair and members of the panel will be appointed by HMRC.
  • While there are relatively short time limits for the taxpayer to submit representations to HMRC and the advisory panel, there are no statutory time limits by which HMRC must communicate to the taxpayer or advisory panel concerning the application of the GAAR. The guidance does indicate the following: There is no prescribed time limit for a designated officer to refer matters to the Advisory Panel. However, where a taxpayer has made representations, the officer will aim to refer within the 45 day period beginning with the day on which representations are received by the officer. The guidance also indicates there is no time limit for the advisory panel to conclude its opinion, but that it is expected this will take around 60 days. The guidance also indicates that where the taxpayer feels HMRC is taking too long to carry out its obligations, it is open to the taxpayer to use existing legislation (for example apply for a closure notice under para 33 of FA98 Sch18 in respect of corporation tax) to progress matters.
  • Many had commented that decisions of the advisory panel should be published in full. While the procedural requirements contain no rules on the publication of advisory panel decisions, the guidance and response document indicate that shortly after its decision the advisory panel will publish a summary of anonymised key principles emerging from the case referred to it (there will also be an annual digest of decisions). Should the case go before a court or tribunal, there will be a requirement for that court or tribunal to take account of HMRC's GAAR guidance as approved by the panel and the opinion of the GAAR advisory panel on the avoidance at issue. At that stage the identity of the parties involved would generally be known.
  • Despite calls for the GAAR to operate by direction, it will come within the self-assessment regime. Taxpayers will therefore need to self-assess whether it applies. Subject to meeting the procedural requirements HMRC will be able to issue GAAR counteraction notices where it considers this is appropriate, as a result of enquiry and investigation under the existing enquiry rules and time limits.

When the GAAR applies

The GAAR will have effect to counteract tax advantages from tax arrangements that are abusive. It will apply to the following taxes:

  • income tax,
  • corporation tax, including any amount chargeable as if it were corporation tax or treated as if it were corporation tax,
  • capital gains tax,
  • petroleum revenue tax,
  • inheritance tax,
  • stamp duty land tax, and
  • annual residential property tax.

It is intended the GAAR will also apply to National Insurance Contributions, but this will require separate legislation.

In order for the GAAR to apply it will be necessary to conclude that the obtaining of a tax advantage was the main or one of the main purposes of the arrangements, having regard to all the circumstances.

The double reasonableness test then needs to be considered. This is in two parts.

  • The first is whether tax arrangements can be considered a reasonable course of action in relation to the relevant tax provisions having regard to all the circumstances.
  • The second is whether tax arrangements can reasonably be regarded as a reasonable course of action.

The advisory panel will only consider the first part of the double reasonableness test. The second part will initially be considered by HMRC, and then (if the decision is appealed to a Tribunal or Court) this will be considered by the Tribunal or Court, after taking account of the decision of the advisory panel and the approved GAAR guidance. The Tribunal or Court will also be able to take into account guidance, statements or other material in the public domain at the time the tax arrangements were entered into and evidence of established practice (if HMRC had indicated its acceptance of that practice at the time the arrangements were entered into).

The guidance explains that the "cannot reasonably be regarded" test of what is abusive does not ask what is a reasonable course of action in relation to the relevant tax provisions. Instead, it asks whether there can be a reasonably held view that entering into or carrying out the tax arrangements in question was a reasonable course of action. This leaves a considerable amount of judgement as to what is or is not 'reasonably regarded'. However the draft guidance indicates that because of this possibility of conflicting views, there will be a high threshold for showing that tax arrangements are abusive.

The factors considered in determining what is a reasonable course of action having regard to all the circumstances are:

  • Whether the substantive results of the [tax] arrangements are consistent with the principles on which those [legislative] provisions are based and their policy objectives;
  • Whether the means of achieving the results involves one or more contrived or abnormal steps;
  • Whether the arrangements are intended to exploit any shortcomings in those [legislative] provisions.

Examples of what might indicate tax arrangements are abusive are:

  • the arrangements result in an amount of income, profits or gains for tax purposes that is significantly less than the amount for economic purposes,
  • the arrangements result in deductions or losses of an amount for tax purposes that is significantly greater than the amount for economic purposes, and
  • the arrangements result in a claim for the repayment or crediting of tax (including foreign tax) that has not been, and is unlikely to be, paid,

Each of the above cases will only apply if it is reasonable to assume that such a result was not the intended result when the relevant tax provisions were enacted. The fact that arrangements accord with established practice that HMRC has indicated its acceptance of at the time the arrangements were entered into will be an indicator of arrangements which are not abusive.

Tax advantage for the purpose of the GAAR includes:

  • relief or increased relief from tax,
  • repayment or increased repayment of tax,
  • avoidance or reduction of a charge to tax or an assessment to tax,
  • avoidance of a possible assessment to tax,
  • deferral of a payment of tax or advancement of a repayment of tax, and
  • avoidance of an obligation to deduct or account for tax.


The GAAR will have effect in relation to tax arrangements entered into on or after the date of Royal Assent of Finance Bill 2013. It will not apply to arrangements that have already been entered into before commencements. In determining whether tax arrangements which cross over the commencement date are abusive, transactions entered into before commencement are ignored, unless they are necessary to determine that the arrangements as a whole are not abusive.

Procedural requirements

There will be a five stage process to be followed leading up to HMRC's operation of a GAAR counteraction notice:

1) An HMRC officer must refer the case to the designated HMRC officer. The designated HMRC officer must then write to the taxpayer to give notice that in his opinion the tax advantage ought to be counteracted, giving an explanation of why and notifying him of the 45 day period (from the date the notice is given) in which to make representations to HMRC about the proposed counteraction;

2) The taxpayer than has 45 days to submit any written representations;

3) The designated HMRC officer must then refer the matter to the GAAR advisory panel, together with any representations made by the taxpayer. He must also give the taxpayer notice of this reference with a note that the taxpayer has 14 days from the date of notice to send any written representations to the advisory panel.

4) The taxpayer has 14 days in which to send in any written representations to the advisory panel;

5) The advisory panel must then consider the reference, if necessary inviting further information from HMRC or the taxpayer. If further information is to be submitted by one party, a copy must be given to the other party. There is no time limit for the advisory panel process.

6) The advisory panel must then provide the designated HMRC officer with their opinion (more than one if there are differences) on whether the tax arrangements are a reasonable course of action (or state that it is not possible to reach a view on that matter) and the reasons for that opinion.

7) After considering the advisory panel view, the designated HMRC officer must then give the taxpayer notice of whether a counteraction is to be taken, and if so the adjustments required to give it effect.

The taxpayer will then have a period of 12 months from the date of the counteraction notice to make a claim for one or more consequential adjustments in respect of any tax to which the GAAR applies. HMRC must then make such consequential adjustments as are just and reasonable.

For the purposes of income tax, CGT and corporation tax, TMA Sch1A will apply to any claims for consequential adjustments. This schedule will also apply if a claim relates to PRT, but with a modification from 'year of assessment' to 'chargeable period' (as per OTA1975 s1(3) and s1(4) of that Act).

If the claim relates to IHT it must be made in writing and IHTA84 s221 applies. For claims relating to SDLT, FA03 Sch11A applies. The legislation is not yet complete as to how consequential claims in relation to the annual residential property tax are to be administered.

The GAAR will have priority over any other tax related priority rule (so that it will apply to arrangements affected by double tax treaties, notwithstanding TIOPA s6).

The guidance

The draft guidance (yet to be approved by the Advisory Panel) is in three parts:

Part A – the scope of the legislation. This covers the background to the measure, the key GAAR provisions for its application and notes on commencement.

Part B – examples. This covers examples where the GAAR does and does not apply for corporation tax, income tax, CGT and IHT, and an example where the GAAR would apply for SDLT. The SDLT example refers to the use of the subsale (transfer of rights) rules to avoid or reduce the incidence of SDLT. The subsale rules are to be substantially reformed in Finance Bill 2013 with effect from the date of Royal Assent. In general the examples where the GAAR apples concern arrangements that have already been countered in updated legislation, while those examples where it doesn't apply are likely to be considered by most tax advisers as fairly standard planning. Further examples will be required to indicate more clearly where the GAAR does and does not apply. For example there is no discussion of whether the GAAR would apply to situations involving share based payment awards and/or employee benefit trusts and or pension arrangements.

Part C – GAAR procedure. This covers the procedural requirements in the GAAR schedule, the counteraction measures and the formation of the Advisory panel.


An initial assessment is that this version of the GAAR is more clearly targeted at what most tax advisers would consider abusive tax avoidance, and should not affect the vast majority of commercial transactions. However there are still areas of judgment where it may be possible to arrive at opposing views on the same facts. How successful the measure is in practice, only time will tell.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.